SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 4312/14 (Milton)
DATE: 2014 09 08
RE: BLUECAP FINANCIAL SOLUTIONS INC. and PETER SCHACHTSCHNEIDER v. PERFECTSENSE TRADING CO. LTD. and LUKAS HENDERSON
BEFORE: EMERY J.
COUNSEL:
J. Binavince, for the Applicants
C. Brown, for the Respondents
HEARD: August 20, 2014
ENDORSEMENT
[1] This motion for injunctive relief on an interlocutory basis came on for hearing before Ricchetti J. on August 14, 2014 and was adjourned for hearing to August 20, 2014, on terms.
[2] The applicant, Peter Schachtschneider (“Peter”) is one of two applicants in an application. Peter seeks orders to dissolve the alleged partnership he says he formed in September 2013 with his son, the respondent, Lukas Henderson (“Lukas”). The other applicant, Bluecap Financial Solutions Inc. (“Bluecap”) is a lender to Peter and also to Lukas, together or separately. Peter seeks distribution of the assets of the partnership and damages; Bluecap seeks payment of all it is owed.
[3] The motion before the court is brought only by Peter. He seeks an interlocutory injunction restraining Lukas and his new company, the respondent Perfectsense Trading Co. Ltd (“PST Ltd”), their agents or servants from dealing with any inventory of linens, bed sheets and other products now stored on the premises of Carrier One Distribution Inc. in Mississauga.
[4] As Bluecap is not a moving party, I do not propose to discuss any rights or remedies available to it at this stage.
[5] Before Peter entered the alleged partnership with Lukas, he was in the business of selling homeware products and linens at craft shows and other events in Ontario. This is what the parties refer to as the retail business.
[6] Lukas is good with computers. He operates an online wholesale business selling goods over the internet. Lukas also sourced a manufacturer of linens and bed sheets in China to purchase those goods for resale. In the course of his own business, Lukas began to supply linens and bed sheet products to Peter, either as a supplier or as a function of the alleged partnership between them. Peter would then resell those products as part of the wares he offers for sale through his retail business.
[7] According to the affidavit of Lukas in response to the motion, Peter owed him $25,000 as of May 19, 2014 for product Lukas had supplied. Peter was requesting more product from Lukas, but Lukas refused to supply more without payment. If there was a partnership between Peter and Lukas, it would appear this was the end of it.
[8] Peter deposes that Lukas did not deposit or apply credit for payments from online customers or payment agents such as PayPal, Amazon or Marlexa to the partnership bank accounts after May 22, 2014. In the application, he seeks an accounting for all partnership funds.
[9] Peter brings this motion to restrain Lukas from accessing the product allegedly purchased by the partnership from the manufacturer in China that is now stored on the premises of Carrier One Distribution in Mississauga, which I understand to be a business and distribution centre. He says he ultimately requires access to that product as partnership property to carry on his business, and to generate revenues to pay down his debt to Bluecap.
[10] Counsel for Peter and the responding parties agree that the correct test for me to apply on this motion is the three part test set out in RJR MacDonald Inc. v. Canada, 1994 117 (SCC), [1994] 1 SCR 311. Those parts are:
Whether there is a serious issue to be tried;
Whether there is evidence that the moving party will suffer irreparable harm if the order requested is not granted; and
In whose favour does the balance of convenience operate if the order is granted?
1. Serious Question
[11] The baseline question of whether Peter and Lukas had formed a partnership is an issue raised on the application. Peter points to the evidence on the motion that Lukas registered Perfectsense Trading Co. as the business name for the partnership, added Peter to the bank account and applied for a trademark on behalf of the partnership. Even Lukas in his affidavit describes himself as a partner in paragraph 4, and refers to an intention to pay what he owes under the partnership at paragraph 5. Without deciding on legal effect of the affidavit evidence to date or whether the facts meet the requirements to find Peter and Lukas had formed a partnership under Sections 2 or 3 of the Partnership Act, I find it to be a serious issue to be tried.
[12] The bigger question is whether, if Peter and Lukas had formed a partnership, the product now at Carrier One is partnership property.
[13] The affidavits show that Peter and Lukas were borrowing money from Bluecap to purchase linen and bed sheet lines of product since 2013. Peter estimates the amount borrowed from Bluecap to currently be in the range of $100,000 to $120,000. Peter also estimates the product now stored at Carrier One has an approximate retail value of $100,000. It is this product Peter seeks to secure on this motion.
[14] Lukas denies that he has “hijacked” the undertaking of the partnership, if that is what it is. As I understand the argument, Lukas takes the position that he owes Bluecap for funds advanced to purchase product from his sources in Asia. It is conceded by Peter that Lukas and Peter each gave Bluecap a security interest in inventory on an individual basis, and not as a partnership.
[15] It is not for me to determine further whether the property involved is partnership property. On the competing evidence in the affidavits filed, I need only conclude this to be a serious issue to be decided, and I do.
2. Irreparable Harm
[16] Peter states that he will suffer irreparable harm if this injunction is not granted. This is often the biggest battle to win or lose on a motion of this kind.
[17] Peter argues that because of Lukas’ actions, Bluecap will not lend him any more money to carry on his retail business. However, I have now read the affidavit of Scott Wilson sworn on August 19, 2014, and filed by Peter in reply. Scott Wilson is a principal of Bluecap. He has also served as the go-between for Peter and Lukas since communication broke down between them on or about May 22, 2014.
[18] Scott Wilson deposes that Bluecap has been cooperative with Peter for a number of reasons given in paragraph 17 of his affidavit. In subparagraph (e), Mr. Wilson states that Bluecap provided Peter with a further $15,000 in order to purchase inventory to sell at the Canadian National Exhibition this year in Toronto. Mr. Wilson states that he made that advance to Peter to ensure Peter could pay the “partnership debt”. Whether Bluecap provides Peter with further funding depends in large part on the result of the application when it is heard.
[19] It would therefore appear that funding to Peter is not entirely dependent on the success of this motion. Nor does the motion material show any efforts made by Peter to obtain financing for his retail business from other lenders. Peter has failed to show how he will suffer irreparable harm by any loss of funding if the motion should fail.
[20] Peter also argues that the linens and bed sheets he has purchased from other sources bear three different trade names that he states is a source of confusion for his customers. He makes this argument as the reason for requiring the preservation of product at Carrier One. The fact that he has purchased product elsewhere for resale speaks volumes. Furthermore, evidence of the retail business Peter carried on at the CNE this summer is evidence he is no suffering irreparable harm.
[21] Peter must also get around the obstacle that the application is essentially one for an accounting, distribution of partnership property, and the payment of damages. Peter makes the argument that Lukas is impecunious, and that any asset or liquidity Lukas may have is in the form of the very product or inventory held at Carrier One. He refers to the decision in Radd Precision Inc. v. Lall, 1996 CarswellOnt 11 as authority that irreparable damage may be found by the court where there is evidence that any damage a defendant may cause to a plaintiff may be caused with impunity because the defendant is impecunious. There is no evidence before me that the inventory on hand at Carrier One as of May 22, 2014 represents the only asset available to Lukas or to PST Ltd. to satisfy any claim for damages.
[22] The end result is that I do not find that Peter will be caused irreparable harm by Lukas if he should have access to the product at Carrier One.
3. Balance of Convenience
[23] Lukas has deposed in paragraph 8 of his responding affidavit that:
He is still bringing in product as inventory to Carrier One;
He undertakes, personally and on behalf of PST Ltd to not remove any inventory, except in the ordinary course of business, and to continue to have new shipments of inventory stored at Carrier One; and
He is prepared to pay a commercially reasonable amount to Bluecap, or as this court may direct, towards the debt that Bluecap claims against both Lukas and Peter, from each shipment that may be released to Lukas or PST Ltd for sale or distribution in an amount verified by the parties or determined by the court. In paragraph 37 of his affidavit, Lukas deposes that he is prepared to continue making payments of $3,000 per month until the portion of the debt to Bluecap is paid for which he or his corporation is responsible.
[24] If the product now at Carrier One is withheld, Lukas may not be in a position to make the payments to Bluecap as proposed, or to grow his online business if it is found to be separate from the alleged partnership. This will also impact on his ability to provide for his three year old son, or to service other debt, such as the $20,000 he has borrowed from his friend, Jane Mai.
[25] In contrast, Peter has not invested any money in the alleged partnership. Peter seeks access to the product at Carrier One Distribution to supply his own retail business to generate income and ostensibly to service his debt to Bluecap.
[26] On the balance of probabilities, I find the evidence for this part of the test favours Lukas in that he will likely suffer the greater harm if the order is granted.
[27] I therefore dismiss the motion of the applicant Peter Schachtschneider, subject to terms. I am imposing the following terms pursuant to the discretion the court is given under Rule 1.05 and 37.13(1) and for forward looking reasons like those in Bradbury v. Traise, (1986) 12 C.P.C. (2d) 261:
(a) Lukas and PST Ltd. shall not remove any product or inventory at Carrier One Distribution in Mississauga, Ontario except in the ordinary course of business, and shall have all new shipments of product or inventory stored at and distributed from Carrier One Distribution until further order;
(b) Lukas shall keep a complete accounting of all product sold from the inventory on hand at Carrier One Distribution as at August 20, 2014;
(c) Lukas shall account for the deposit or disbursement of any and all proceeds from the sale of that product;
(d) Lukas and PST Ltd. shall pay $3,000 a month to Bluecap on account of the indebtedness of himself or the alleged partnership with Peter as of May 22, 2014 without prejudice to a final determination by the court or resolution by all parties in writing as to the proper allocation of those payments to the indebtedness of one or more parties to Bluecap;
(e) All funds paid to date into the trust account of the respondents’ counsel pursuant to the terms of adjournment ordered by Justice Ricchetti on August 14, 2014, shall be held there in trust until further order;
[28] These terms are imposed to preserve the benefit of the funds accumulating in trust under the Order made by Justice Ricchetti on August 14, 2014, and to hold Lukas to the undertaking and representations he made in his affidavit to leverage his position on the motion. In my view, anyone who commits to a course of conduct by giving an undertaking or making a representation to his or her detriment to gain an advantage on a motion should be held to those commitments despite successfully resisting the motion in the result.
[29] I further make an order under Rule 37.13(1)(b) that the application be heard in Milton on an expedited basis once the parties have served all affidavits and conducted cross examinations.
[30] If any party seeks costs of this motion, written submissions may be made consisting of no more than three typewritten pages not including a costs outline, and sent by fax to my Judicial Assistant Sherry McHady at (905) 456-4834 by September 26, 2014.
Emery J
DATE: September 8, 2014
Perfectsense Trading Co. Ltd., 2014 ONSC 5185
COURT FILE NO.: 4312/14 (Milton)
DATE: 2014 09 08
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: BLUECAP FINANCIAL SOLUTIONS INC. and PETER SCHACHTSCHNEIDER v. PERFECTSENSE TRADING CO. LTD. and LUKAS HENDERSON
BEFORE: EMERY J.
COUNSEL: J. Binavince, for the Applicants
C. Brown, for the Respondents
ENDORSEMENT
EMERY J
DATE: September 8, 2014